Last Updated: April 2026
California has the highest state income tax rate in the United States at 13.3% on income above $1 million (including the 1% Mental Health Services surtax). Combined with federal rates, California's top earners face marginal rates exceeding 50% on ordinary income. Despite this, California's economy — the 5th largest in the world — continues to attract high-earning residents in tech, entertainment, and finance.
This guide covers California's complete tax picture: the income tax rate structure (including the 10.3%, 12.3%, and 13.3% top brackets), Proposition 13's property tax freeze, sales tax rates that reach 10.75% in some cities, and the rules for establishing non-residency when leaving California — one of the most aggressively enforced departures in the USA.
| Taxable Income | Rate |
|---|---|
| $0–$10,756 | 1% |
| $10,757–$25,499 | 2% |
| $25,500–$40,245 | 4% |
| $40,246–$55,866 | 6% |
| $55,867–$70,606 | 8% |
| $70,607–$360,659 | 9.3% |
| $360,660–$432,787 | 10.3% |
| $432,788–$721,314 | 11.3% |
| $721,315–$1,000,000 | 12.3% |
| Above $1,000,000 | 13.3% (12.3% + 1% Mental Health) |
California standard deduction: $5,363 (single) / $10,726 (married) — much lower than the federal $14,600/$29,200. California does not conform to the higher federal TCJA standard deduction. As a result, more Californians itemize on their state return than on their federal return.
California's Proposition 13 (1978) fundamentally restructures property tax: base property tax is 1% of the assessed value at purchase (purchase price for new buyers); annual increases in assessed value are capped at 2% per year (or the CPI increase, whichever is lower); assessed value is only reset to market value upon sale or new construction. This creates a situation where long-term California homeowners pay far less property tax than recent buyers of equivalent properties.
Example: a California homeowner bought a home in 2000 for $400,000. In 2024, the home is worth $1.2M. Property tax: assessed value ≈ $500,000 (2% growth for 24 years); 1% tax = $5,000/year. A buyer purchasing the same home today: 1% × $1.2M = $12,000/year. Same home, same neighbourhood, $7,000/year difference in property tax — paid indefinitely. This Prop 13 protection makes California homeowners very reluctant to sell and move within California — they'd lose their low assessment base.
Proposition 19, passed in November 2020, significantly limited Prop 13 inheritance transfers: previously, children could inherit a parent's home and keep the low Prop 13 assessment forever. Now: the inherited home must be used as the child's primary residence to retain the parent's low assessment (with a $1M adjustment); if used as a rental or second home, the assessment resets to market value. This has created significant estate planning changes for California families with real estate.
California is known for aggressively challenging high-income taxpayers who claim to have left the state. There is no formal 'exit tax,' but the Franchise Tax Board (FTB) can audit claimed departures for up to 4 years (10 years for fraud) and assert that a taxpayer remained a California resident.
The FTB considers the following when evaluating whether someone has truly left California: primary home location and lease/mortgage; location of spouse and children; location of employer; location of medical providers; location of bank accounts; where vehicle is registered; California club memberships; social activities; vacation home vs primary home status. The FTB has successfully argued that taxpayers who maintained a California vacation home, kept their California dentist and doctor, and whose children attended California schools had not established non-California domicile — even after buying a Nevada home.
Document everything — the burden of proof is on the taxpayer to demonstrate non-residency. Many high-income departing Californians engage a tax attorney to create a contemporaneous residency change record.
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Living abroad but still owe California tax? Former California residents with deferred comp, RSUs, or rental income may still have CA filing obligations. Greenback's CPAs handle US expat returns including California non-resident filings.
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US Expat + California Filing →California's effective income tax rates (approximately, single filer, 2024): $50,000 income: approximately 3.0% effective rate ($1,500 tax); $100,000 income: approximately 5.8% effective rate ($5,800 tax); $200,000 income: approximately 8.2% effective rate ($16,400 tax); $500,000 income: approximately 10.5% effective rate ($52,500 tax); $1,000,000 income: approximately 11.5% effective rate ($115,000 tax); $2,000,000 income: approximately 12.5% effective rate ($250,000 tax). The 9.3% bracket covering $70,607–360,659 captures most middle-to-upper incomes — this is often called California's effective 'middle rate.' The 13.3% rate applies only to the portion of income above $1M. Combined with federal rates: a $500,000 California earner faces approximately 35% federal + 10.5% state = ~45.5% combined marginal rate on ordinary income.
Proposition 13 makes California's effective property tax rate extremely low for long-term homeowners: Hawaii (0.28%), Alabama (0.41%), and California (0.75%) are consistently among the lowest effective property tax rates nationally. A California homeowner who bought in 2005 might have an assessed value representing 30–40% of current market value — paying tax at 1% of a $400,000 assessment on a $1.2M home ($4,000/year) versus a new buyer paying $12,000/year. Texas (1.60%), Illinois (2.08%), and New Jersey (2.23%) are far more expensive annually, even on equivalent home values. However, Prop 13 creates a significant entry barrier for new California home buyers and distorts housing markets by reducing selling incentives for existing owners. The 'Prop 13 lock-in effect' is well-documented as a contributor to California's housing shortage.
Yes — California taxes stock options and RSUs as ordinary income, subject to the same 1–13.3% rates. Key rules: NSO (Non-Qualified Stock Options): taxed as ordinary income at exercise — the spread between exercise price and market value is California wages. ISO (Incentive Stock Options): not taxed at exercise for regular tax, but the spread is an AMT (Alternative Minimum Tax) preference item for both California AMT and federal AMT. RSUs: taxed as ordinary income when vested (or sometimes when settled if restrictions exist). Capital gains: holding the stock after exercise/vest and selling at a gain triggers California capital gains tax — California taxes long-term and short-term capital gains at the same ordinary income rates (unlike the federal 0%/15%/20% rate differential). This makes California particularly expensive for large stock-based compensation: a $1M RSU vest is taxed at 13.3% by California (for high earners) plus federal income tax, with no preferential rate for long-term holding.
California taxes its residents on worldwide income. When you leave California: (1) You are taxed as a California resident through your departure date and must file a part-year resident return (Form 540NR); (2) After departure, California only taxes California-source income (income from California employment, California rental property, gains on California real property, and certain other California-source items); (3) California-source income remains taxable to non-residents indefinitely — a former California resident receiving rental income from California property continues to owe California tax on that income. Note on deferred compensation: if you leave California but later receive deferred compensation that was earned while California resident, that deferred compensation may be California-source income (complex rules apply under California Revenue & Tax Code). Stock options that vested while California resident: even if exercised after leaving, the California-period vesting is California-source income. This deferred compensation reach is why departing high-income Californians sometimes accelerate income recognition before departure.
California has its own Alternative Minimum Tax (AMT) separate from federal AMT. California AMT rate: 7% on Alternative Minimum Taxable Income (AMTI). California AMT exemption: $83,800 (single); $107,300 (married joint) — phase-out begins at $312,745 / $415,660. Who faces California AMT: those with large ISO (Incentive Stock Option) exercises; those with high itemized deductions; those with significant preference items. California AMT is calculated separately from federal AMT — you may owe California AMT even if you don't owe federal AMT (or vice versa). ISOs are particularly tricky: exercising ISOs creates an AMT preference item in both federal and California calculations, potentially creating a significant AMT bill in the exercise year even with no stock sold. If the stock then declines in value, you can face a situation where AMT was paid on gain that no longer exists — the California AMT credit helps recover over subsequent years but can create cash flow issues in the exercise year.